COP21: Canadian provinces take centre stage

December 17, 2015

Throughout the two weeks at COP21 in Paris, while negotiations centred on our federal Government, Canada’s provincial leaders were represented in full force.[1]

Cap-and-trade was the talk of the town, as Manitoba announced its intention to link with Ontario, Québec and California in the Western Climate Initiative (WCI), a collaborative effort amongst jurisdictions working together to tackle climate change. Ontario’s involvement at the conference and side events made it clear that Canadian provinces are making combatting climate change a key priority.

The pair was in Paris for a number of reasons: to participate in the Canadian delegation during the first week, to promote the role of subnational governments by participating in the Lima-Paris Action Agenda (LPAA), and to make a joint announcement with Québec Premier Philippe Couillard and Manitoba Premier Greg Selinger.

Manitoba announced that it would be the third Canadian province to join a cap-and-trade system. The three provincial leaders signed a memorandum of understanding (MOU) to outline their plans to link their systems as well as intentions to harmonize their greenhouse gas (GHG) tracking and measurement methods, deal with climate adaptation, promote intergovernmental collaboration, and increase public awareness of climate change.

How does this news impact Ontario?

Overall, Manitoba joining the cap-and-trade system is good news for Ontario. Ontario is set to benefit as more jurisdictions join the market because it begins to eliminate the main concern with this legislation, that is, competitiveness and leakage. This refers to the concern that firms, and their associated emissions, may relocate from one province to one that has not implemented a carbon price. The firms that fall into this risk category are those that are identified as emissions intensive and trade exposed (EITE).

Luckily, Manitoba and Ontario have only a small percentage of their economies at risk of competitiveness pressures – four and two percent respectively, according to a study by the Eco Fiscal Commission. Although Ontario’s economy is not at high risk of having firms migrate elsewhere, it is still very beneficial to have neighbouring jurisdictions come on board, as it begins to diminish these concerns altogether. Due to Manitoba’s size, and its economy being much smaller compared to Ontario or Québec’s, its joining the market is not expected to have strong impacts on the price of permits.

The other benefit of provinces following Ontario’s lead is that it furthers the Province’s narrative of combatting climate change, and it legitimizes their choice to implement cap-and-trade. It is ultimately Ontario’s goal to be part of the largest North American carbon market, so Manitoba’s inclusion is good news for the longevity of these policies, and even public support for them.

Where are we going from here?

The Federal government has promised that within 90 days of COP21 they will be meeting with the provinces and determining Canada’s new federal and provincial emissions reduction targets, in line with the new Paris Agreement. This gives them until approximately mid-March to determine Canada’s next steps in the urgent need to address GHG emissions and meet our 2020 targets, as well as plan for future deep cuts in emissions.

It is clear that Canada is becoming a unique case study for those interested in carbon pricing policies. With over 90 per cent of Canadians living in a jurisdiction with a form of pricing, and each taking a slightly different approach, we are set up to be a space to watch.

Overall, Ontario played a positive role in COP21, and appears very prepared to make climate change a government priority into the future. What environmental stakeholders are hoping for in the short-term is that the Province takes their cap-and-trade consultation feedback seriously and revises the current program design where needed. As others, like Manitoba, begin to follow suit, the early adopters have the opportunity to shape the success or failure of the design - so it is imperative that we get it right in Ontario.